the problem of pass-through funds and capital in transit in fdi statistics gerrit van den dool mena...
TRANSCRIPT
The problem of Pass-through Funds and The problem of Pass-through Funds and Capital in Transit in FDI statisticsCapital in Transit in FDI statistics
Gerrit van den Dool
MENA Conference, Istanbul, 9 November 2006
Objective and content of this training sessionObjective and content of this training session
Objective Introduction to some interpretation problems with respect to present FDI statistics
ContentA. General overview of problems/possible solutionsB. More detailed description of the problemsC. More detailed description of solutions
D. Conclusion
A. Overview – Problems, possible solutionsA. Overview – Problems, possible solutions
The problem: users dissatisfied with current
presentation of FDI (many targets, only one bullet)
Solution: additional info/tables for different users
One of the main targets (discussed today):
Problems are caused by several features of current FDI statistics
Economically meaningful data on “genuine” FDI
Features of current FDI statistics (1)Features of current FDI statistics (1)
Outward FDI = assets -/- certain liabilities
Inward FDI = liabilities -/- certain assets
1
2
Directional principle
NETTING: 1 -/- 2 = Outward figure (participation of affiliate in parent < 10%)
Reporting economy
Affi-liate
Direct Parent
Features of current FDI statistics (1)Features of current FDI statistics (1)The problemThe problem
1
2
Directional principle
NETTING: 1 -/- 2 = Outward figure (participation of affiliate in parent < 10%)
Reporting economy
Affi-liate
Direct Parent
Some users would like to see non-netted data Other users would like to extend the netting
Features of current FDI statistics (2)Features of current FDI statistics (2)
1
*) E.g. via SPECIAL PURPOSE ENTITIES
Capital in transit *) is included
Reporting economy
Affi-liate
Parent= SPE
Ultimate parent
SPE - Established for fiscal or other regulatory advantages
Production and employment may be zero
Features of current FDI statistics (2)Features of current FDI statistics (2)The problemThe problem
1
*) E.g. via SPECIAL PURPOSE ENTITIES
Capital in transit *) is included
Reporting economy
Affi-liate
Parent= SPE
Ultimate parent
Incoming and outgoing positions and flows may be strongly inflated
Features of current FDI statistics (3)Features of current FDI statistics (3)
1
2
Breakdown by country/industry
?
FDI statistics show direct counterpart countries
Reporting economy
Affi-liateParent
Breakdowns show the country or industry of the direct counterpart (the investor or the investee)
Features of current FDI statistics (3)Features of current FDI statistics (3)The problemThe problem
1
2
Breakdown by country/industry
?
FDI statistics show direct counterpart countries
Reporting economy
Affi-liateParent
Present statistics do not show the ultimate origin or destination of capital many users are interested in
Summary of some major problemsSummary of some major problems
How to use financial data in economic analysis?
Which part of outward FDI really reflects the role a country plays in the process of globalisation?
Which part of inward FDI really reflects foreign interest in the reporting economy?
FDI figures may have nothing to do
with the reporting economy
Tables that could better meet user needs (preview)Tables that could better meet user needs (preview)
Aggregates (excl. SPEs)
1a/2a. Outward / Inward (possibly redefined)
1b/2b. Positions ultimately controled by resident UIPs
1c/2c. Positions ultimately controled by non-resident UIPs
Breakdown by country and industryMemo items: Total (unadjusted) assets, Assets of SPEs,
Total (unadj.) liabilities, Liabilities of SPEs
Conditions to be taken into accountConditions to be taken into account
Full reconciliation between different presentations (OECD/IMF, SNA)
Balance between costs and benefits
Costs: reporting burden, resources of compiler
Benefits: user can easily find what he wants
B. More detailed discussion of the problemsB. More detailed discussion of the problems
Current problems (1) – Pass-through via SPEsCurrent problems (1) – Pass-through via SPEs
Inflation of aggregates due to empty shells
Assets and liabilities may be distorted by different amounts netting not effective
Exclusion is way out Empty shell
Reporting economy
SPE
Example – The Dutch caseExample – The Dutch case
- Special reporting requirements for SPEs
- Legal framework, special definition
- Publications: tables excluding and including SPEs
FDI incl. and excl. SPEs (equity, 2005, € billion)
-
600
1.200
Outward InwardSPEs
Genuine
The problem for counterparties of the The problem for counterparties of the Netherlands (NL) …Netherlands (NL) …
Apparent FDI relationship of Middle East and North African countries with NL
(2005, million $)
-
3.000
6.000
9.000
12.000
15.000
18.000
Equity (Assets)
Equity(Liabilities)
Debt (Assets)
Debt(Liabilities)
Actual FDI relationship of Middle East and North African countries with NL
(2005, million $)
-
3.000
6.000
9.000
12.000
15.000
18.000
Equity (Assets)
Equity(Liabilities)
Debt (Assets)
Debt(Liabilities)
SPE
Genuine
……is far from negligible is far from negligible
Current problems (2) – Treasury activitiesCurrent problems (2) – Treasury activities
Inflation due to treasury centres with resident parents (onlending, liquidity management…)
Debt positions between sister companies not covered by directional principle
Extend the DP
Non-empty treasury centre
TRC
A C1200 500 B
NON-SPE
Current problems (3) – Example: a take-overCurrent problems (3) – Example: a take-over
IIP of BOriginal situation
Outward C 500
Inward -------
After take-over (in 1 step)
Outward C 500
Inward A 1200
Interpretation problems
C500 B
NON-SPE
A C1200 500 B
NON-SPE
Interpretation issues
FDI economically relevant to B is 700, not 1200
Role of B as an independent “player” on the world stage is 0, not 500
A takeover in 2 steps would give different FDI data
Outward C 500
Inward A 1200
A C1200 500 B
NON-SPE
IIP of BOriginal situation
Outward C 500
Inward -------
After take-over (in 1 step)
Outward C 500
Inward A 1200
After take-over (in 2 steps)
Outward -------
Inward A 700
500 CA
700
BNON-SPE
C500 B
NON-SPE
How to deal with indirect control?How to deal with indirect control?
1200 500
A C
Country B
Incoming FDI related to activity in B itself: 700
B’s role as an (independent) player in globalisation: 0
This would suggest to net
Outward = 0, Inward = 700
1200
A C500
Country B
Indirect control may even distort Indirect control may even distort the data of the data of twotwo countries at the same time countries at the same time
Inflation of the data of both B and A
Further thorny issues …Further thorny issues …
1200 500
A C
Country B
What if 1200 represented a greenfield investment?
(500 could have been financed later on by portfolio capital)
This would suggest to record
Inward = 1200 (Outward = 0)
C. Solutions that have been proposedC. Solutions that have been proposed
Extend the Directional PrincipleExtend the Directional Principle
Two sisters a1 and a2, same UIP A. Netting debt seems appropriate, but in whose direction?
Proposal: let it depend on the controling UIP
Net liabilities = 1-2
Inward
1
2
a1a2
UIPA
Net assets = 2-1
Outward
1
2
a1a2
UIPA
Sort positions by resident/non-resident controlSort positions by resident/non-resident control
More can be done now: net all intra-company (= same UIP) positions and sort them by UIPs
Net liabilities = 1-2
Inward
1
2
a1a2
UIPA
a3
Outward
1
2
Net assets = 2-1
b1b2
UIPB
b3
A proposalA proposal
Exclusion of SPEs
Extension of the Directional Principle No longer limited to direct links
Net amount is no longer just an asset or a liability
It now also informs the user about the UIP:
Outward = net assets controled by resident UIPs
Inward = net liabilities controled by non-res. UIPs
A more detailed comparison of the current and A more detailed comparison of the current and alternative presentationsalternative presentations
Present situation - Outward = 2+4+6+8+10+14-3Present situation - Outward = 2+4+6+8+10+14-3 - - Inward = 1+5+7+9+11+13-12Inward = 1+5+7+9+11+13-12
13 14 1 2
8 7
9
3
4
5
6
12
11
10
UIP A
UIP B
b3
a1
Y
b1
SPE
a2
Z X
W
a3
b2
New presentation: three additional dimensions New presentation: three additional dimensions 1. SPE/non-SPE, 2. Res/non-res UIP, 3. Intra/extra-company1. SPE/non-SPE, 2. Res/non-res UIP, 3. Intra/extra-company
Step 1 – Exclude SPEsStep 1 – Exclude SPEs
13 14 1 2
8 7
M2 M1 M2 and M4
12
11
10
9
3
4
5
6
EXCLUSION
UIP A
UIP B
b3
a1
Y
b1
SPE
a2
Z X
W
a3
b2
Step 2 – Distinguish counterparties by groups Step 2 – Distinguish counterparties by groups and calculate …and calculate …
13 14 1 2
8 7
M2 M1
9
3
4
5
6
M2 and M4
12
11
10
EXCLUSION
UIP A
UIP B
b3
a1
Y
b1
SPE
a2
Z X
W
a3
b2
… … net assets (resident UIP) – Outward net assets (resident UIP) – Outward net liabilities (non-resident UIPs) – Inwardnet liabilities (non-resident UIPs) – Inward
13 14 1 2
8 7
M2 M1 M2 and M4
12
11
10
9
3
4
5
6
EXCLUSION
SS
ADJUSTED (NET) ASSETS
SS
ADJUSTED (NET)
LIABILITIES
UIP A
UIP B
b3
a1
Y
b1
SPE
a2
Z X
W
a3
b2
Step 3 – Classify other minority interests Step 3 – Classify other minority interests also as inward or outward also as inward or outward
13 14 1 2
8 7
M2 M1
9
3
4
5
6
M2 and M4
12
11
10
Arrows = minority interests
EXCLUSION
SS
ADJUSTED (NET) ASSETS
SS
ADJUSTED (NET)
LIABILITIES
UIP A
UIP B
b3
a1
Y
b1
SPE
a2
Z X
W
a3
b2
Outward = intra-c. Outward = intra-c. + extra-c.(wxyz)+ extra-c.(wxyz) = (4+6-3-5) = (4+6-3-5) + 2+ 2
Inward = intra-c.Inward = intra-c.+ extra-c.(wxyz)+ extra-c.(wxyz) = (9+11-10-12) = (9+11-10-12) +13+1-14(?)+13+1-14(?)
13 14 1 2
8 7
M2 M1
9
3
4
5
6
M2 and M4
12
11
10
Arrows = minority interests
EXCLUSION
SS
ADJUSTED (NET) ASSETS
SS
ADJUSTED (NET) LIABILITIES
UIP A
UIP B
b3
a1
Y
b1
SPE
a2
Z X
W
a3
b2
Feasibility: “Yes/no” info to be reportedFeasibility: “Yes/no” info to be reported
Is the UIP a resident or not?
Is the reporting entity an SPE or not?
Is the foreign counterparty a subsidiary of the same UIP?
E. Conclusion / summaryE. Conclusion / summary
Current situation - one bullet for different targets
The target discussed today: the economic activity perspective; to be hit by Exclusion of SPEs
Extension of netting approach (dir. principle)
Breakdown by resident/non-resident UIPs
Major conditions seem to be met: Full reconciliation with IMF-manual and SNA
Additional information remains manageable
Thank you for your attentionThank you for your attention
Gerrit van den Dool